Fed And ECB To Drive EUR/USD

The Euro to Dollar (EUR/USD) exchange rate extended its March slide and finished the week in the mid-1.14s, leaving the pair close to the month’s lows.

Price action remained dominated by risk-off demand for the dollar amid the energy and geopolitical shock, while traders looked ahead to a heavy central-bank and US data run in the days immediately ahead.

WEEKLY RECAP:

A renewed bid for the US dollar on safe-haven demand stayed the defining driver for EUR/USD, with energy-market disruption keeping a tight link between oil headlines and the single currency’s performance.

Eurozone data also leaned against the euro at the margin, after official figures showed euro area industrial production fell 1.5% month-on-month in January, following a 0.6% drop in December, reinforcing concerns over the region’s growth backdrop as energy costs rise.

That weaker tone has sat alongside the broader narrative that an energy shock tends to be more damaging for the euro area than the US, a theme that has been prominent since our piece, sell EUR/USD with target 1.12, was published late last week.

ING said in a recent note that “the longer oil stays up here the more it saps growth in the oil importers of Europe and Asia and weighs on their growth – far more than it weighs on US growth.”

The repricing of near-term rate expectations also remained in focus, with investors trying to judge whether higher energy prices raise the risk of stickier inflation while simultaneously darkening the growth outlook.

BNP Paribas Wealth Management shifted its short-horizon view on the pair in a March 9 publication, lowering its three-month EUR/USD target to 1.14 and arguing the oil shock leaves the dollar supported until the crisis fades.

Into the new week, attention also turns to the near-term policy calendar, with the Federal Reserve’s March meeting and the European Central Bank’s March decision both approaching, while markets remain sensitive to any sign that inflation dynamics are changing again.

Near-Term EUR/USD Forecast: Central Banks Take Control

The immediate focus is the Federal Reserve’s policy decision and communication on Wednesday, which is the week’s top-tier event risk for the dollar and global rates.

The decision will be read through the lens of whether policymakers keep the door open to easing later in 2026, or whether the energy-driven inflation impulse and firmer financial conditions keep the Committee cautious.

MUFG said in a March 4 FX Focus note that “Operation ‘Epic Fury’ has triggered a sharp energy price shock and a strong USD rebound,” framing the dollar move as a classic reaction to an energy-driven risk event that tends to hit Europe’s terms of trade harder.

Before that, Monday brings US industrial production and the Empire State manufacturing index, while Tuesday includes German and euro area ZEW sentiment surveys, giving markets fresh reads on activity and confidence on both sides of the Atlantic.

Later in the week, Thursday features the ECB’s policy announcement and press conference, alongside US jobless claims, setting up a second major volatility window for EUR/USD.

EUR/USD will likely stay highly reactive to any hint that the ECB is more constrained by inflation risks, or that the Fed is less willing to validate expectations of meaningful easing.

Downside risks will be driven by renewed energy-price spikes and a stronger dollar bid in risk-off conditions, while upside risks would require clear signs of stabilising energy markets and a dovish lean from the Fed that pulls US yields lower.